Understanding the Costs of Buying a Home

Estimated reading time: 3 minutes

While some first-time homebuyers only anticipate their down payment when purchasing a home, there are other costs you’ll encounter along the way. To help you be a more informed and confident buyer, we’re laying out various expenses you can expect before signing on the dotted line.

What are One-Time Costs to Expect?

Down Payment

When people think about the cost of buying a home, many typically think of the down payment, which is the amount paid upfront toward your mortgage. The amount necessary to put down is dependent on your mortgage loan program, with many borrowers contributing between 3% and 20% of the overall purchase price. Putting down 20% or more may assist in a lower interest rate and provide an opportunity to avoid private mortgage insurance.

Closing Costs

On average, buyers spend between 2% and 6% of the purchase price of the home for their closing costs to their lender or a third-party to cover certain fees. These costs can vary, but they may include:

• An appraisal fee, which covers the cost of the official appraisal report. Your appraisal is required by mortgage lenders to ensure the home is worth the amount of money they’re lending to you.
• An origination fee, which covers your mortgage lender for the cost of processing your loan.
• Title insurance, which protects you and your mortgage lender if there are any potential issues that arise over the ownership of your property.

Earnest Money

To show a seller that a homebuyer is committed to buying the home after they sign a purchase agreement, the buyer will make an earnest money deposit. Typically 1% to 2% of the purchase price, earnest money is held in escrow until the deal is completed.

Inspection

An inspection assesses a property’s safety and quality with the goal of uncovering issues with the home itself to help you make an informed decision about going through with the home sale.

What are Ongoing Costs to Expect?

Along with your mortgage payment, there are other ongoing homeownership costs to account for. Be sure to speak with your Loan Originator openly about your financial health to ensure your payments align with your goals.

Monthly Payment

Your monthly mortgage payment includes four parts: principal, interest, taxes, and insurance. Your property taxes, private mortgage insurance, and home insurance are usually included in this monthly payment.

Maintenance

Experts advise saving 1% of the property purchase price for maintenance. According to a survey conducted by USA Today, the average homeowner spends $5,775 on maintenance each year.

Are There Other Expenses to Plan for?

Cash Reserves

When you qualify for a mortgage, your lender will want to see a certain amount of money set aside in your savings and investment accounts. This serves as extra confirmation that you have the means to pay your mortgage payments on time.

Moving Costs

Factoring moving costs ahead of your closing can help reduce your anxiety—and the strain on your bank account. Depending on the distance you move and amount of items you have, local moves can cost between $300 and $6,000, according to an August 2024 Forbes article.

Emergency Fund

It can be tempting to use your emergency fund for new furniture or extra home expenses. However, the money you set aside for unexpected expenses is best left alone until you need it for things like job loss, medical bills, and other unexpected expenses.

Home Financing That Works for You

Homeownership offers an opportunity to build wealth and a sense of community. It’s best to have a team that can help you navigate through the various steps. Contact us today to connect with one of our experienced Loan Originators who will help you from application to post-closing!